Aluminum Fee to Japan Gains as Demand Grows on Rebuilding

Aluminum buyers in Japan agreed to pay producers higher premiums for shipments starting in April, the first increase in three quarters, as the nation’s recovery from natural disasters boosts demand from builders and carmakers.

Premiums for the three months through June were set at $115 to $117 a metric ton over the London Metal Exchange cash price in transactions agreed so far, compared with $112 to $113 this quarter, said three officials involved in the negotiations. They declined to be identified because the talks were private. Some second-quarter transactions are still being negotiated with offers placed at $122 and $132 a ton, they said.

Fees will increase after the economy in Asia’s largest aluminum importer returns to growth this quarter as a result of rebuilding from last year’s earthquake and tsunami. Supply declined after smelters reduced output on rising production costs and low metal prices. Aluminum buyers in Japan pay a premium in addition to the LME cash price to cover freight and insurance and to reflect regional supply and demand.

“Demand for aluminum products is beginning to expand after eight straight months of decline,” said Koji Iida, head of statistics at the Japan Aluminium Association. “Reconstruction from the disasters will boost metal consumption by builders and automakers further into the new fiscal year.”

Aluminum has advanced 15 percent this year, the second best performer among six base metals traded on the LME, after declining 18 percent last year. Metal for three-month delivery gained 0.2 percent to $2,330 a ton at 1:26 p.m. Tokyo time.

Furukawa-Sky

The increase in Japanese aluminum fee may boost costs for fabricators such as Furukawa-Sky Aluminum Corp. (5741), Japan’s largest mill. Spokesman Ryu Sawachi said he couldn’t confirm the premium.

The fee is applied to so-called Good Western-grade aluminum ingot. The biggest suppliers of Western ingot to Japan include Rio Tinto Plc (RIO), BHP Billiton Ltd. and Alcoa Inc. (AA)

Japanese industrial production rose 2 percent in January from the previous month, the Trade Ministry said in Tokyo today. That exceeded the median estimate of 1.5 percent in a Bloomberg News survey of analysts. Car sales jumped 24 percent, the most in 22 years, after the government re-introduced a subsidy for buyers of energy-efficient cars.

Stimulus Packages

Japan’s economy will expand an annualized 4.1 percent this quarter, compared with a 2.3 percent contraction in the previous three-months, as delayed projects for reconstruction proceed, according to Masayuki Kichikawa, Tokyo-based chief economist at Merrill Lynch Japan.

Parliament has passed four stimulus packages totaling about 21 trillion yen ($261 billion) since the earthquake and tsunami devastated Japan’s northeast on March 11, and caused nuclear meltdown at a Tokyo Electric Power Co. (9501) facility in Fukushima. The 12 trillion yen in the third extra budget, the biggest among the four plans, passed parliament in November and the fourth program was approved this month.

Shipments of aluminum products to the construction sector, the largest consumer of the metal in Japan, jumped 20 percent to 51,137 tons in January as increased orders for new houses boosted sales of sashes and doors, according to data released yesterday by the Japan Aluminium Association.

Shipments to the auto industry gained 5.3 percent to 22,986 tons as car sales and production picked up after the government revived subsidy payments to buyers of fuel-efficient models.

To protect a domestic industry reeling from natural disasters and the yen’s appreciation, the Japanese government began in December waiving some taxes and offering rebates for certified low-emission vehicles, allocating 300 billion yen in the fiscal budget.

The state aid will help the nation’s automakers increase sales by 900,000 vehicles in their home market this year after a record 14 percent drop in 2011, according to Toshiyuki Shiga, chairman of the Japan Automobile Manufacturers Association.

To contact the reporter on this story: Aya Takada in Tokyo at atakada2@bloomberg.net

To contact the editor responsible for this story: Jarrett Banks in Tokyo at jbanks15@bloomberg.net.

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